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Tuesday, September 6, 2016

Having read my post on Krugman and Hicks’ IS-LM misrepresentation of Keynes’ theory, professor Jan Kregel kindly sent an unpublished article he wrote back in 1984 — The Importance of Choosing a Model: Hicks vs. Keynes on Money, Interest and Prices — in which it is argued that Hicks’ particular presentation of Keynes’ theory and choice of model was “crucial to its destruction”….

2 comments:

Paul Davidson said Hicks recanted in a letter to Davidson, but died before he could publish his new realization.===============================

Over the next few years, Hicks and I met privately several times in the United Kingdom to continue our discussions regarding the foundation of Keynes’s general theory. By the mid-1970s, Hicks was ready to admit that his model was a “potted version” of Keynes. By 1979, he was arguing that economics is embedded in calendar time and that a relationship that held in the past could not be assumed to hold in the future. In an article in the Journal of Post Keynesian Economics entitled “ISLM: An Explanation,” Hicks denounced his mathematical model of Keynes that textbooks had adopted. Hicks wrote of this model: “As time has gone on, I have myself become dissatisfied with it” and admitted that his formulation did not describe Keynes’s general theory approach at all. 6

Finally, after reading my paper on the fallacy of rational expectations, 7 Hicks wrote to me in a letter dated February 12, 1983: “I have just been reading your RE [rational expectations] paper…. I do like it very much…. You have now rationalized my suspicions, and shown me that I missed a chance of labeling my own point of view as nonergodic. One needs a name like that to ram a point home.” 8

Thus Hicks, who had won a Nobel Prize for his use of general equilibrium theory, renounced his famous formulation of Keynes’s framework and accepted the nonergodic view of the operation of a capitalist economy. Unfortunately, Hicks died shortly after writing this letter, and his conversion did not have any impact on the economics profession.